Securities abuses are not confined to any single sector of the marketplace. As we often have seen, the microcap markets have been a magnet for stock schemes, ranging from high-pressure boiler room sales practices to spam e-mail promotions. But tiny companies are not the only targets or vehicles for stock frauds – as Enron, Worldcom, Tyco and a host of other scandals demonstrated.
And so, while StockPatrol.com will continue to examine the schemes that pervade the penny stock world, in the months ahead we also will focus on some of the problems that surface at high-profile companies trading on the NYSE and NASDAQ and at prominent brokerage firms. Take, for example, recent revelations that several major public companies have backdated options to accommodate management or a handful of shareholders. These clandestine practices – which assured profits for the favored few – could only succeed if the companies failed to disclose material information to the public. By operating in shadows, these companies denied investors a level playing field – and many have been damaged.
Consider Apple. The Securities and Exchange Commission has outlined the Company's scheme to create documents suggesting Board of Directors approval of option grants to key executives – even though the Board had not take that action at the time reflected in the documents. Similarly, Brocade Communications Systems and Comverse Technology were charged with orchestrating similar back-dating schemes.
Backdating options achieves a dual purpose. It enables the recipient to receive options at favorable prices, based upon the value of shares at the contrived time of the grant. At the same time, as allegedly was the case with Apple, it allows the company to manipulate possible charges against earnings – again based upon the value of the options on the fictitious grant date.
And then there is the cover-up – the bugaboo that traps most schemers in the end. In the case of Apple, investigators say the Company falsified documents to support the phony option grant dates.
Nor is Apple alone. On March 27, 2007, Myron, F. Olesnykyj, the former general counsel of Monster Worldwide, Inc. was permanently barred by the SEC from working as a director or office of a public company because of his role in a stock option back-dating scheme. The SEC found that the former Monster lawyer helped backdate options from 1997 to 2003, then faked documents to mask the scheme and hid his conduct from regulators.
The backdating caused Monster to overstate net income by $340 million from 1997 to 2005. Investors who bought Monster shares relied upon these inaccurate financial statements.
The SEC and
We are interested in hearing from investors who may have been affected by one of these option backdating schemes. Have you been a victim? We are continuing to investigate these practices – so let us know your story.
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